Beware of counseling services that actually divert the consumer into a debt consolidation program and to charge excessive administrative fees.
Hiring an experienced attorney is often preferable, and even cheaper, than attempting to reduce or eliminate debt through a consumer debt-counseling agency. Many of these companies operate in a legal gray areas and can end up making a families financial situation worse through fees and payment programs they cannot afford.
Additionally, because they are paid based on a percentage of repayment, debt-counseling agencies often dissuade clients from filing bankruptcy, even when that is the best legal course of action for their financial situation.
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Alternatives to Bankruptcy
Even when it seems you are overburdened with debt, there may be situations where bankruptcy is not your best option. You may want to consider alternatives – paying creditors with a debt program you can afford, negotiating with creditors to reduce the debt or other options you should discuss with a bankruptcy lawyer.
With the help of a professional, you can often get creditors to go along with a plan that gives you more time to pay a debt. The goal is to pay the bills on a timetable and through a plan you can afford. An experienced and qualified attorney can help prevent the debt from growing and stop creditors from tacking on late payment fees, increasing the interest rate and/or charges legal fees.
The usual time frame for repayment should be less than three years. So if your income doesn’t allow you to make payments in that short of a time and pay off all the debt, an experienced attorney can assist with other options, including bankruptcy protection.
With a credit repayment plan, you are paying the entire debt. But the balance can often be negotiated. When creditors realize they stand to collect little or nothing through a bankruptcy filing, you and your attorney can negotiate the total balance from a position of strength.
A third option is to do nothing. In the U.S., with the exception of some debts such as child support, you cannot be jailed for failing to pay your financial obligations. If you have no property and little income, doing nothing to pay your debts could be a good alternative to bankruptcy.
Creditors take debtors to court when they know they can collect. If you have nothing, creditors are unlikely to invest time and money in a lawsuit because even if they win they won’t get their money. You are essentially “judgment proof.”
In this case creditors simply give up and write off the debt. This ruins your credit, but after a period of time these write-offs can be taken off your credit report.
The big problem with taking the do-nothing route is that creditors will hound you in an attempt to collect. However, there are strict regulations on what a creditor can do when they are trying to collect a debt.
Under the Fair Debt Collection Practices Act debt collectors are prohibited from lying, cheating or abusing a person in order to try to collect a debt. The Federal Trade Commission enforces the act, and has a free guide to the FDCPA.
An attorney experienced in debt collection or bankruptcy can help stop the abusive practices of debt-collection agencies and may even be able to file a lawsuit seeking damages on your behalf in cases where debt- collection agencies have overstepped their legal authority.
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